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Denmark Targets Too-Big-to-Fail Bill as Early as This Month

Sept. 3 (Bloomberg) -- Denmark’s government plans to push
through a March proposal that sets out tougher capital standards
for its systemically important banks as early as this month.

“We could reach a deal as early as September but there is
no deadline,” Benny Engelbrecht, business spokesman for the
ruling Social Democrats, said in an interview.

The final bill, which would require Danske Bank A/S and
Denmark’s five other biggest banks to hold as much as 5
percentage points in additional reserves, is likely to have
opposition backing, Engelbrecht said. Once parliament’s business
committee agrees on the wording of the legislation, the bill’s
passage into law is a formality.

The drive is the latest example of Scandinavian legislators
moving faster on bank regulation than the rest of Europe as near
record-low interest rates distort credit and housing markets in
some of the world’s richest economies. In Sweden, the four
biggest banks must hold at least 12 percent core Tier 1 capital
of risk-weighted assets by 2015, a target Norway’s largest
lenders must meet by 2016. The European Union has yet to enforce
rules for systemically important banks.

“A deal may be reached by September, though travel
obligations could postpone it into October,” Brian Mikkelsen,
business spokesman for the opposition Conservative Party, said
in an interview. “Either way, the deal will be closed and this
can pass into law by the end of the year.”

Talks Hampered

The opposition had earlier this year sought to block the
March proposals for Denmark’s biggest banks arguing the
recommended capital requirements would hamper lending. Lars
Rohde, governor of Denmark’s central bank and the head of the
country’s Systemic Risk Board, has repeatedly rejected claims
that higher capital burdens on their own hurt banks’ ability to
lend.

Too-big-to-fail talks had been hampered by disagreement
over trigger levels at which bank debt converts to equity and at
which management loses its freedom to dish out dividends and
bonuses.

The Financial Supervisory Authority said yesterday Danish
lenders will be allowed to use contingent convertible bonds to
help build their regulatory reserves. The watchdog set a 7
percent core Tier 1 capital conversion trigger, a level it said
matched thresholds elsewhere in Europe, including Switzerland
and the U.K.

Well Below

Like Sweden’s biggest banks, the largest Danish lenders
have combined assets that are about four times the nation’s
gross domestic product. Danske Bank alone has assets that are
more than 180 percent of GDP. The banks’ size justifies the
stricter requirements, according to the government’s Sifi
committee.

Switzerland named and regulated Sifis in 2011, as UBS AG
and Credit Suisse Group AG, which account for 31 percent of
Swiss lending, were asked to hold 3 percent additional equity,
according to a document published by the Danish government.
France, Germany, Norway, the Netherlands and the U.K., who are
working on similar legislation, haven’t yet identified Sifis or
set capital buffers,

Trigger Levels

Engelbrecht has argued the financial industry is better
served with a clear set of rules and doesn’t need a lengthy
debate on how best to treat systemically important lenders. That
supports the need for swift passage of Sifi legislation, he
said.

Shares in Danske Bank declined as much as 1.5 percent and
fell 0.4 percent to 114.30 kroner as of 2:45 p.m. in Copenhagen.

Lawmakers signaled that the final Sifi bill may yet differ
from the original proposals in the March proposals.

According to Mikkelsen, the chances of a Danish Sifi
agreement have grown brighter since Social Democrat Henrik Sass
Larsen replaced Socialist People’s Party Annette Vilhelmsen as
business minister last month.